UAE’s Economy the Fastest Growing in GCC in 2019

Published February 9th, 2019 - 11:05 GMT
UAE infrastructure spending will ramp up as Expo 2020 Dubai preparations gather pace. (Shutterstock)
UAE infrastructure spending will ramp up as Expo 2020 Dubai preparations gather pace. (Shutterstock)

Economic recovery across the Middle East and North Africa is set to slow down in 2019 and growth is likely to be weaker than most expect, but the UAE at 3.5 per growth is likely to be the best performer in the region in the run-up to Expo 2020 Dubai, analysts at Capital Economics said.

In the Gulf, low oil prices shouldn't cause major balance sheet strains, but tighter fiscal policy and oil output cuts will be the key reasons for weak economic growth to weaken, analysts observed in Capital Economics' Mena Economic Outlook.

While the UAE's economy is likely to be the best performer in the Gulf, helped by preparations for Expo 2020 Dubai, Saudi Arabia's economy is set for a slowdown this year on the back of oil output cuts and tighter fiscal policy, said the report.

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"Kuwait's economy is the best-placed in the Gulf to cope with low oil prices, but even so we expect growth to remain weak. Balance sheets in Bahrain and Oman are relatively fragile. Financial support from neighbours should help to keep dollar pegs intact. In return, though, austerity is likely to be stepped up, weighing on economic growth," said the report.

Analysts expect UAE GDP growth to be a bit stronger this year than 2018. "Our forecast of 3.5 per cent lies above the consensus."

The UAE has agreed with the rest of Opec to cut oil production. But the year-on-year change in oil output - which is ultimately what matters for GDP growth - is actually likely to be a touch stronger this year than in 2018.

"We doubt that the oil output cuts will provide a lift to oil prices - in fact, we think that Brent crude will fall to $50 per barrel by end-2019. This won't cause too many problems for the UAE. The current account will stay in surplus and the budget deficit is small and can be easily financed from the country's large savings," analysts said in the report.

In contrast to the rest of the Gulf, fiscal policy should remain fairly supportive. Infrastructure spending will be ramped up as preparations for Expo 2020 Dubai gather pace. There will be a sizeable boost to the economy when the Expo rolls into town in 2020. However, increasing supply is likely to prolong the downturn in the property sector.

The boom in property prices in 2012-14 was not driven by a run-up in credit so a repeat of the challenges in 2009 is unlikely. In addition, a slowdown in the global economy is likely to weigh on activity in the UAE's key manufacturing, tourism and logistics sectors.

By Issac John

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